There has been a big negative reaction to the Cyprus bailout deal – but why? Well, there are a number of big problems here from a negotiating perspective;
1) There was no warning before the EU attempted to foist a bank raid on the citizens of Cyprus. If you are going to push someone around in a negotiation then it’s important to give a signal first. If you just spring it on them as a surprise then you create a lot of resentment, as the EU has discovered, because the discomfort is compounded by the fact that it was unexpected.
2) People in a negotiation are always more concerned with potential losses of things they already have, than opportunities to gain more. So, take away their deposits and you can expect howls of protest.
3) If you show you can’t be trusted people will be very wary of dealing with you. This scenario shows that the EU will contemplate forcing ordinary citizens to take the rap for the failings of their Banks. At a time when the EU most needs to build reassurance in its institutions and its currency, It has instead showed that it cannot be trusted with your money.
Investors and ordinary citizens in other countries will take note…
I think they did this the wrong way round. Once the authorities in Cyprus and EU officials recognised that savers deposits might need to be involved it would have been better to put a sensible temporary limit on withdrawals from Banks and warn people that saver deposits might need to form some part of the solution. A short consultation process could then have taken place in which depositors could have expressed their views and the Government could have explained the problem to depositors in a less frenzied atmosphere. People would still have been outraged of course, and the solution might have been exactly the same, but the process would have aroused a bit less resentment because people would have had some chance to have their say and get used to the outcome in advance. As it turned out the solution caused more distress than it needed to because it was imposed as a surprise and a fait accompli…
Clive
How can you give a warning .?…the bank runs would be instant ….